For decades friends and adversaries alike had prematurely forecast the end of the American era, and 2011 was at best a plateau year for the United States, which showed signs of actual decline for the first time. With its economy and political system weakened, the U.S. struggled to maintain the world-leadership role it had long shouldered. It continued to live well beyond its means and recorded a $1.3 trillion deficit even as the country’s economy again failed to generate its traditional robust growth. Moreover, the federal government became even more deeply immobilized by partisan gridlock.

Although the U.S. was accustomed to directing affairs abroad, it became more collegial in 2011 and encouraged other prominent countries to assume their share of ensuring world security. Many U.S. allies, particularly in Europe, faced their own economic problems, however. Meanwhile, Russia, China, Iran, and some of the West’s other traditional rivals continued their resurgence without serious interference. The U.S. took major steps to wind down its 10-year war on terrorism, but while it reduced its overt military presence in Afghanistan and Iraq, it generated new controversy with expanded use of unmanned drones for spy missions and military attacks in several areas of the world.

Domestic Policy

Handcuffed by the struggling economy, ongoing deficits, and paralyzing political partisanship and led by a politically weakened Pres. Barack Obama maneuvering for reelection in 2012, Washington claimed few domestic accomplishments during 2011. In its least-productive year in recent history, Congress approved only 80 new public measures (most of them inconsequential), the lowest number since World War II—a stark contrast to 2010, when the federal government produced a host of new legislation, including a historic revamping of the country’s health care system. A year of deadlock resulted after a Republican majority took control of the U.S. House of Representatives in January 2011, having vowed to stop and even undo President Obama’s agenda.

Republicans and Democrats split sharply over the proper corrective course for a national economy that showed little sign of improvement for most of the year. Democrats generally favoured more government stimulus spending and higher taxes on the wealthy; Republicans pushed for reducing government and holding the line on taxes. As a result, virtually nothing was done to assist the economy other than stimulating it with a third consecutive year of more than $1 trillion in deficit spending. Brinksmanship ruled the day, with four near shutdowns of government during the year, which generated even more uncertainty and prompted an unprecedented lowering of the U.S. credit rating.

Obama pushed for a $447 billion job-creation bill that included an extension of the 2% payroll tax cut he had negotiated in late 2010, to be paid for by additional taxes on high-income earners. With the federal government already having borrowed some 36 cents of every dollar spent, however, Republicans balked. They cited scant evidence of progress from an even larger 2010 stimulus program that had failed to keep unemployment from rising well above 9%. The Obama measure was rejected, and his administration spent the remainder of the year attempting to get pieces of it approved, with mixed success.

The most-dramatic confrontation occurred in midsummer when congressional leaders faced a deadline on increasing the country’s debt ceiling. Failure to act could have meant another potential government shutdown and an unprecedented default on federal debt obligations. Republicans demanded spending reductions at least equal to the debt-level increase and opposed measures to increase revenue. On August 2, just hours before a possible default, Congress passed the Budget Control Act of 2011, which increased the debt ceiling and aimed at trimming some $2.4 trillion in spending over 10 years. It required a vote on a balanced-budget amendment to the U.S. Constitution, specified $917 billion in cuts, and mandated the creation of a congressional “supercommittee” to propose by late November another $1.5 trillion in cuts. The failure to identify the required spending reductions would trigger $1.2 trillion in cuts, to be split evenly between defense and nondefense programs.

Ultimately, only $21 million of the first $917 billion in reductions would be effective during the 2012 financial year, and balanced-budget-amendment drafts were voted down in both congressional chambers. Standard & Poor’s, citing a lack of real progress in Washington’s debt-reduction initiatives, lowered the U.S. credit rating. In late November the12-member supercommittee, equally divided between Democrats and Republicans, announced that it had failed to reach agreement on the remaining spending reductions, which initiated a process for enacting the required $1.2 trillion domestic and defense spending cuts for 2013 and beyond.

At year-end, after another unproductive showdown over continuing the payroll-tax reduction and extending long-term unemployment benefits, Congress agreed to a mere two-month extension of both measures, to which it added a provision that attempted to force Obama to approve the politically charged Keystone XL oil pipeline from Alberta to Texas.

As these events unfolded, a populist movement on the left of the political spectrum gained steam in the autumn of 2011. Inspired by the mass protests of the Arab Spring, a disparate group of protesters calling themselves Occupy Wall Street took up residence in a park near New York City’s financial district to call attention to a list of what they saw as injustices. Among the protesters’ concerns were that the wealthy were not paying what the protesters considered a fair share of income taxes and that major corporations—particularly banks and other financial institutions—needed to be held more accountable for risky practices. The protesters identified themselves as “the 99 percent,” the have-nots who would no longer put up with the corruption and greed that they perceived among “the 1 percent,” the wealthiest Americans. In the succeeding weeks the movement spread to other cities across the country.

Among the handful of relatively uncontroversial new laws approved during the year was the first major overhaul of the country’s patent system in 50 years. The new law provided increased funding to reduce the Patent Office backlog and sought to lessen disputes and widespread frivolous lawsuits by changing the patent-granting standard from “first invented” to “first filed.” The USA PATRIOT Act, once considered a major threat to civil liberties, was extended until June 2015, with only minor modifications, even after several legislators warned that federal officials had secretly abused the act to invade personal privacy. Results of the 2010 census began to be released early in the year. (SeeSpecial Report.)

After a four-year delay, the White House successfully pushed Congress to approve free-trade agreements with Panama, Colombia, and South Korea that were originally negotiated by the administration of George W. Bush. The agreement with South Korea was the largest new trade pact since the North American Free Trade Agreement. Congress also approved a defense-appropriations bill that contained a controversial measure allowing indefinite detention of U.S. citizens suspected of terrorist activities. Obama signed the bill but declared that he would not authorize such detention without trial.

The Economy

Historically the U.S. had not only snapped sharply back from most economic recessions but often led the world out of downturns. In 2011, however, the U.S. economy continued to languish, with minimal growth, high unemployment, and expansion insufficient to absorb new job seekers. External events—including an economic slowdown in Asia, the Japanese earthquake and tsunami that disrupted auto-parts supply, and the European sovereign debt crisis—seemed to stall every U.S. economic rally. The Federal Reserve System, which kept its short-term interest rates just above zero for the third straight year, had seemingly exhausted its ability to encourage economic activity, and as a consequence of legislative gridlock, the federal government offered but minimal assistance to the struggling economy. For the first three quarters, GDP grew at a woeful 1.8% or less, and although economic activity appeared to accelerate in the fourth quarter (with predicted growth of about 3%), the underperforming economy remained the country’s most-serious concern.

As part of the Occupy Wall Street protests, which called attention to corporate greed and income …

Andrew Burton/AP

Protesters in Albany, N.Y., on Oct.ober 21, 2011, gather in support of the Occupy Wall Street …

Hans Pennink/AP

U.S. equity markets recorded an uneventful year. The broad S&P 500 started 2011 at 1257 points, drifted up in the spring, and plunged in late summer, amid the congressional budget crises and economic worries in Europe, only to finish the year back at 1257. The narrower Dow Jones average gained 5.5%. Intermediate and long-term investment rates took a dive when investors rushed to the safety of U.S. bonds and treasury notes after a midyear sell-off in equity markets. The bellwether U.S. Treasury 10-year note dipped below 2% in the fall. Long-term interest rates on mortgages fell to historic lows. By December the benchmark 30-year home mortgage rate stood at 3.9%, the lowest since World War II.

The U.S. housing situation remained stuck in a backlog of foreclosures, with more looming; it was estimated that more than 30% of borrowers held mortgages that were greater than the value of their homes. The economic slowdown had been triggered in 2007 by the bursting of the mortgage bubble, which left a morass of lawsuits, state and federal investigations, a historic decline in housing prices, underperforming government assistance programs, and resulting foreclosures. Banks, backed by lower borrowing costs, made extraordinary efforts to clear the backlog, but progress was glacial, in part because of high unemployment and general economic malaise. Average housing prices in major metropolitan areas continued to hover near their crisis lows of spring 2009, remaining about one-third below their peaks of summer 2006.

Even so, at year-end, economic reports indicated a more robust recovery might be getting under way. In November unemployment dropped from 9% to 8.6%, its lowest level in 30 months, although much of the improvement was attributed to a reduction in the number of those still actively seeking work. Inflation, as measured by the consumer price index, was slated to rise by only 2.2% for the year; housing starts actually began climbing; and corporate earnings were reported to have reached record levels. Although major economic problems abroad created obstacles to renewed U.S. growth, they also provided an opportunity for American economic leadership. (SeeSpecial Report.)

Foreign Policy

For the two decades following the end of the Cold War, the United States enjoyed unquestioned primacy in world affairs. As the world’s sole superpower, it pursued foreign-policy goals backed by a mighty military empowered by deficit spending. In 2011, however, there were unmistakable signs that U.S. influence was ebbing, particularly in the Middle East.

In his 2008 presidential campaign, Obama had criticized U.S. “unilateralism” and promised a more collegial foreign policy. The first major achievement of that approach occurred when France and Britain, concerned about the security of European oil supplies from North Africa, led a NATO intervention assisting rebels against longtime Libyan strongman Muammar al-Qaddafi. U.S. planes and drones helped establish a no-fly zone over Libya early in the intervention but later left manned flight operations to non-U.S. NATO pilots, which prompted jibes that Obama had “led from behind.” Even though the operation took longer than expected (seven months) and culminated in the untoward execution of Qaddafi, the Obama administration hailed it as a model of international cooperation and an encouragement for European countries to assume their share of NATO’s military burden.

The U.S. struggled to keep abreast of the events of the Arab Spring (seeSpecial Report), alternately viewed in Washington as a refreshing expansion of democracy or as an ominous resurgence of Islamic fundamentalism against secular regimes that were friendly to the U.S. The American response to Egypt’s demonstrations was particularly mixed. Secretary of State Hillary Rodham Clinton initially appeared to back longtime U.S. ally Hosni Mubarak. However, after having declared his regime stable and well-intentioned, she turned against the Egyptian president when he was deposed by the military. The U.S. openly provided aid to a pro-Western regime in Bahrain that was under assault but helped lead international opposition to the brutal suppression of an uprising against the regime of Bashar al-Assad in Syria, Iran’s closest ally in the region and long a thorn in Washington’s side.

Declining U.S. influence was also evident as the Israeli-Palestinian peace process crumbled during the year amid failed U.S. efforts to spark serious talks. In May U.S.-Israeli relations hit a low point when Obama pressured Israel to negotiate after Palestinian rivals Hamas and Fatah reconciled. Obama’s suggestion that Israel use its pre-1967 borders as a starting point for talks was rebuffed by Israel, which said those borders were “indefensible.” In September Palestinians attempted an unprecedented end run around the dormant U.S.-sponsored peace process when they appealed directly to the United Nations for statehood status, but the effort was stymied by opposition in the Security Council from the U.S and several other countries.

The hostile U.S. relationship with Iran deteriorated even further as international diplomatic efforts to prevent the development of nuclear weapons in that country again met with Iranian instransigence. After the International Atomic Energy Agency stated in November that Iran had “carried out” critical steps toward nuclear-weapons production, the U.S., Britain, and Canada imposed strict sanctions on the Iranian government, commercial banking, and energy production. Although the UN chose not to join in the sanctions regime, intelligence reports at year-end suggested that the U.S.-led effort had played havoc with Iran’s currency and economy. Iran released two young Americans whom it had convicted of spying after they wandered into Iranian territory from Iraq while hiking, but it let them go only after receiving payment of nearly $1 million in “bail money.” At year-end, Iran threatened to blockade the vital Strait of Hormuz, but the U.S. pledged to keep the area open to international shipping.

China and Russia provided little overt help in reigning in Iran and actively opposed more-serious sanctions. The U.S. continued its long-term diplomatic chess game with China and sought to prepare for future rivalry with the fast-growing Asian military and economic power. After China arranged to set up a military outpost in far-off Seychelles, ostensibly to help counter Indian Ocean piracy, Obama announced a new U.S.-Australian military arrangement, which began with permanent detachment of a U.S. Marine brigade to Darwin, on Australia’s northern shore. Secretary of State Clinton paid a high-profile visit to Myanmar (Burma) in what some observers saw as an effort to wean that country from its longtime ally China. Obama’s efforts to “reset” the sometimes-tense relationship with Russia, which had thus far proved only modestly successful, seemed to evaporate in December when Clinton declared that recent Russian parliamentary elections had been neither free nor fair. Russian Prime Minister Vladimir Putin icily accused the U.S. of fomenting disruptive street protests in Russia.

War on Terrorism

During 2011 the U.S. passed several milestones in reducing its involvement in the 10-year-old war on terrorism. On May 2 a U.S. Navy Seal team invaded a walled compound in Pakistan and killed Osama bin Laden, the mastermind of the September 11 attacks. The Seals used two helicopters to storm the residence—located only some 730 m (about 800 yd) from the Pakistani army’s chief officer-training academy—and shot bin Laden when he allegedly went for a weapon. The team buried bin Laden’s body at sea. President Obama, who had authorized the hazardous raid and measures to ensure that bin Laden was demonstrably identified, later declared bin Laden’s death “the most significant achievement to date in our nation’s effort to defeat al-Qaeda.”

On May 2, 2011, during the U.S. military raid on Osama bin Laden’s compound in Abbottabad, Pak., …

Mohammad Zubair/AP

The incident further strained an already-tenuous U.S. relationship with Islamic Pakistan, which had long been suspected of playing both sides in the war on Muslim extremism. Rankled by the U.S. failure to alert it to the bin Laden raid, the Pakistani government allowed Chinese technicians to inspect a technologically advanced U.S. helicopter abandoned by the raiders. In September the Pakistani-based Haqqani network mounted a raid on U.S. embassy and NATO facilities in Kabul. U.S. Adm. Mike Mullen, who later retired from the chairmanship of the Joint Chiefs of Staff, declared that the Haqqani network had acted “as a veritable arm” of Pakistan’s Inter-Service Intelligence Directorate. Also in September, 22 Navy Seals, most from the same unit that had provided the forces for the bin Laden raid, were killed when their helicopter was shot down over Afghanistan. Later in the year, in an apparent case of mistaken targeting, NATO aircraft killed 24 Pakistani soldiers manning a border station near Afghanistan. In response the Pakistani government shut down, at least temporarily, one of the key routes used to supply NATO forces in Afghanistan and demanded that the U.S. end its use of unmanned drones over Pakistani territory.

At midyear, in a symbolic but important step, the U.S. began a drawdown of its forces in Afghanistan, as Obama had promised in 2009 when he authorized a controversial surge of U.S. troops. The phased withdrawal, which removed 10,000 of 100,000 U.S. personnel in Afghanistan over six months, was largely well received by Americans who had grown weary of the 10-year conflict and the absence of clear progress toward the mission’s pacification goals. Nevertheless, the withdrawal clearly discomfited U.S. military leaders, whose forces were fully engaged with a resurgent Taliban and other local opposition. Bin Laden’s death paradoxically bolstered critics of the war who argued that the U.S. mission was now complete and should be ended. At year-end, Pakistan boycotted an international conference on Afghanistan held in Bonn, Ger. Afghan leaders promised to continue efforts toward self-sufficient defense and against rampant corruption. They called on their Western allies to continue military and economic assistance for a decade beyond the scheduled 2014 withdrawal of NATO troops.

In late December the departure of the final U.S. troops from Iraq brought an end to a nearly nine-year regime-change effort that had cost the U.S. some $800 billion and 4,400 lives. The Obama administration attempted to negotiate indefinite deployment of at least 5,000 U.S. military personnel as a rapid-reaction force, but Iraqi officials bowed to local political pressure and refused to grant U.S. forces immunity from Iraqi laws. A sizable U.S. diplomatic mission, complete with hundreds of security contractors, remained in Iraq at year-end to help the country with an expected bumpy transition to self-sufficiency in internal security.

At a military base near Al-Nasiriyyah, Iraq, U.S. soldiers departing from the country board a …

Mario Tama—Reuters/Landov

During the year the U.S. continued a dramatic escalation in the use of unmanned aerial vehicles (UAVs), or drones, to conduct surveillance and missile strikes around the world. The CIA and the military ran separate drone programs, which critics complained were not properly coordinated and lacked both adequate congressional oversight and clear rules of engagement. Major drone programs aimed at suspected al-Qaeda targets in Yemen and Somalia continued throughout the year. U.S.-provided UAVs also played a large part in NATO operations in the Libyan campaign. The expanding use of drones generated several controversies. In September a U.S. drone killed an American-born al-Qaeda propagandist, Anwar al-Awlaki, in Yemen. That assassination without trial of a U.S. citizen abroad raised only nominal opposition from U.S. civil rights groups, in large part because Awlaki had clearly led, or at least inspired, anti-U.S. terrorists. In November a drone conducting nuclear-program surveillance over eastern Iran either malfunctioned or was shot down and fell into Iranian hands largely intact. That event provided Iran with a major propaganda victory and led to speculation that Iran would share its newly acquired knowledge of advanced U.S. drone technology with China or other U.S. rivals.

9,526,468 sq km (3,678,190 sq mi), including 233,798 sq km of inland water and 155,293 sq km of the Great Lakes that lie within U.S. boundaries but excluding 111,849 sq km of coastal water and 193,148 sq km of territorial water